All you need is G(overnance): Sustainable finance following Ambrogio Lorenzetti’s frescoes

This paper takes at firm level the inspiration of the Allegory of the Good and Bad Government, the 14th century series of frescoes by Ambrogio Lorenzetti. As in the frescoes the effects of a good government on the city of Siena and its countryside are portrayed, the goal of this paper is to analyze the effect of a good (corporate) governance on stabilizing financial performance and improving sustainability resilience once controversies related to sustainability issues occur. Focusing on the governance dimension and relating our study to the masterpiece of Ambrogio Lorenzetti allow us to highlight the different philosophical basis between the governance, on one side, and the environmental and social dimension. While the latter are linked to practice, governance is at the connection between practice and ethics. Using a large sample of European listed companies from 2006 to 2019, our results, validated by various robustness checks, confirm that that good (corporate) governance is the key factor not only in getting sustainability controversies managed, therefore increasing firm sustainability resilience, but also in reducing equity volatility, therefore stabilizing firm financial performance.